Glencore heads for finish line in Xstrata marathon

Clara Ferreira-Marques, Emma Farge

4 Min Read

LONDON/ZUG, Switzerland (Reuters) - Shareholders in commodities trader Glencore GLEN.L overwhelmingly approved its $31 billion takeover of Xstrata XTA.L, setting the stage for the miner’s own investors to give their go-ahead and all but seal the deal.

A logo of Swiss mining company Xstrata is shown at their headquarters in Zug, November 13, 2012. REUTERS/Michael Buholzer

Some 99 percent of Glencore shareholders said “yes” to one of the mining sector’s biggest deals on Tuesday after a meeting that lasted just over ten minutes. Glencore is controlled by its senior executives and had been expected to back the deal by a large margin.

More Glencore owners opposed the name change - to Glencore Xstrata - than voted against the tie-up to create a mining and trading powerhouse.

The vote by Xstrata’s investors, however, will be more complicated.

They are due to give their verdict over the next few hours in a complex and drawn-out set of votes, which analysts expect to reject a controversial retention plan intended to ensure managers stay on board to deliver important projects.

Investors have already forced changes to two key elements of the long-awaited deal - the price, which Glencore improved at the eleventh hour in September, and the retention plan, which Xstrata revised in June.

Initially, the whole merger was conditional on the 140 million pound ($223 million) “golden handcuffs” plan.

A strong vote against it would be a blow for Xstrata’s board, its outgoing chief executive, mining veteran Mick Davis, and for its chairman, John Bond, formerly of Vodafone and HSBC.

Qatar said last week it would abstain on the retention issue, increasing the chances that vote will not pass. Glencore will also not vote its shares.

DEAL MACHINE

After years of on-off talks and more than nine months of tense negotiations, late-night talks and last-minute twists, an agreement is within Glencore’s grasp - a personal victory for its top shareholder, dealmaker and chief executive, Ivan Glasenberg, who will lead the combined group.

Analysts and advisers have already begun focusing on the next steps for the miner and trader that, with its spread of assets from mines, to oil wells to farms and more ships than Britain’s Royal Navy, is expected to be a deal machine in frugal times.

Xstrata, whose growth over the last decade has been fuelled by deals, was set up with a $2.5 billion acquisition of Glencore coal assets. Glencore, for its part, joined the stock market last year with the intention of funding larger deals, including the bid for control of Xstrata.

“These companies have looked at doing significant acquisitions over the last year - the question is whether they buck the trend and provide more buoyancy in the industry,” Alexander Keepin, partner and co-head of mining at law firm Berwin Leighton Paisner said.

Glencore and Xstrata have already proved a bright spot for the nine banks, law firms and countless other advisers, who will share some $200 million as a result of one of the sector’s largest deals since Rio Tinto’s acquisition of Alcan in 2007.

Depending on the combined group’s final weighting, Glencore Xstrata could be the 13th largest company in Britain’s FTSE 100 .FTSE, representing more than 2 percent of the blue-chip index.

It could also sell some non-core assets - not least Xstrata’s chrome and platinum, analysts say, and revise Xstrata’s portfolio of mining projects, some of which are ambitious greenfield mines that Glencore does not prioritise.

Glencore, Xstrata’s largest shareholder with a 34-percent stake, is offering 3.05 new shares for every Xstrata share. At 1200 GMT, the shares were trading at prices implying a ratio of 2.95, improving on Monday’s close and nearing the deal ratio.

Europe’s antitrust regulators are due to give their verdict by Thursday.